so that you can see what you have, what you need to have, what you will need to have in the future so that the future is one that is bright, bright, bright. now you know. until next week there's only one thing i want you to remember when it comes to your money. people first, then money, then things. happiness happy hanukkah, everybody. now you stay safe. this is "options action." tonight, core, apple shares continue their swoon. dan nathan sees an opportunity in qualcomm and makes four times your money in just one month. he'll show you how. plus call it a shanghai surprise. the chinese stock market has its best one-day rally in three years.

so are coal stocks not far behind? co-and carter think so. they're explain. why are all those traders going yahoo for yahoo! calls. kol scott nations reveals. the action starts now. back in the heart of new york city's time square. stocks closing at the lows of the day. the culprit is a familiar name, apple. the stock has now lost 27% of its value in just three months. it hit a ten-month low today, closing near the lows of the session. what is the next stop for america's favorite stock? let's get in the money. dan, this has to be more than tax selling at this point? >> we've been talking about it for weeks, almost month. really since september 21st when they introduced the iphone 5. at some point it had to do with people booking profits. we saw a trade out of big year-to-date rim mers. this is a story in and of itself.

throw a dart this week for the reasons why it's going down. a lot has to do with the self fulfilling prophesy it's not working anymore. it's worked so long, it's not working anymore. i think the street is starting to come around. the idea that earnings are going to stall here. >> right now it's a fundamental question when it comes to this to be. we have steve mill lon vich coming out questioning whether apple will continue to have the innovation necessary and the geographic expansion necessary to support the growth rates that are baked into the stock. >> it's not just an issue of growth rates either. it's an issue of margins. if they continue to innovate, they charge a premium for the product. that's a lot of the fundamental case for the stock here. i don't know it was just tax related because a lot of institutions might have been less concerned about taxes early on. if you own a big position and it rises at some point, you're going to see yourself pairing back. then you get tax issues, then

momentum and you get questions and those things start to cascade. that's what created a disconnect between a stock that otherwise would look cheap and why people are still selling it. >> also we talked about margins a few months ago, particularly with the ipad mini. people were worried about the margins in the ipad mini not being everything they were in other products. we also have to be worried about momentum. the momentum is clearly lower. when the stock against bounced around like this, the technical indications aren't what they used to be. the important level now are the big round numbers. in apple it's 500. one final thing, when people started putting $1,000 price targets on this stock, we probably should have known then to get out. >> here is the other thing. this stock had an amazing three-year run. we know in the last three months

they've literally refreshed every single -- >> it was the biggest rollout of products in apple's history. >> there's not going to be a new ipad for a while, no new mac air, no. >> and not in china. >> i got up this morning and turned on cnbc. >> of course you did. >> one dude was at the shanghai store in line waiting for the iphone 5. >> the we is will they get china mobile? that's 80% of the smart phone users in china. that's a big question. >> how long have we been waiting for apple tv? >> we could be waiting for months more. >> john has the latest on a developing story between apple and walmart. >> big news that kind of slipped under the radar. that's that walmart is discounting apple products way more than we could have expected. the iphone 5 starting today, the entry level iphone 5 down to $127. at most outlets, $199. the fourth generation ipad starting monday is going to be at $399.

plus they'll throw in a $30 itunes gift card. i've been trying to make calls to figure out what the nature is of this promotion. what i gathered is this isn't something apple is pushing at all which probably means walmart is using this as a loss leader. given the china news, you might be tempted to interpret this purely as a negative. but to me, it also sounds like it's something about supply. walmart feels like they've got enough of these new generation ipads and iphone 5s that they can offer these discounts and get people into stores. they're saying on the ipad, this starts on monday and they're suggesting it will run through the end of the year. i don't know if they'll have enough supply for that to continue. i guess we'll see. definitely an interesting development. >> john, is this more of a walmart story than an am story? when we see the discounts, isn't walmart footing the bill for this essentially and not apple? >> that's definitely what it appears to be. still, we've only tended to see discounts of this type on items

that are end of life, maybe third generation ipad you would have expected to see something like this and just for a short period of time. the fact that apple is doing this on current products and running it for a longer period of time, that's something we have not tended to see in the past. >> thank you, jon fortt out in san jose. we've got to talk about apple because it's not just apple. obviously apple has an impact on nasdaq and certainly on the supply chain, various components and chips that feed into the i products here. >> qualcomm is a name that's a very well liked stock on the street. there's 50 analysts who cover it. 42 buys, five holds and a couple sells. here is the thing about this company, they sell to a lot of people other than apple. if you look at the chart, the two stocks have been very coordinated. >> let me tell you something about qualcomm, he's 100 billion market cap. $26 billion. they pay a $1.67 dividend yield, expected to grow earnings, 16%

next year and sales 23% and trades at a market multiple of about 15 times next year's earning. this is a company that gone thrown out, baby with the bath water. >> the key stat was 6% of revenues come from apple. >> fairly simple strategy but always good to open the playbook and review. it's a bullish strategy where you buy one call and sell a higher strike call against it to reduce the cost. you want the stock to go to the high strike. that's where you make the most money. dan, lay out the trade for snus. >> this was a tough trade. buying out right premium on a directional base business, very difficult to make money. by the end of the day, it came in. i traded a couple different things. this is one i really like here. when the stock was about $59.80, i bought the january expiration, 62 half, 65 call spread for

about 55 cents. i sold one of the 62 half calls -- excuse me, bought one for 90 cents. to reduce the cost, i sold one 65 calls at 35 cents. my max risk is 65. between 63.05 and 65, i can nak $1.95. max gain is $1.95: i can lose that 55 cents in premium up to 55 cents. here is the thing. this is like catching a falling knife here. you don't want to buy stocks like this on big volume days like that. this is a really good defined risk way to play. >> i like this trade really for two reasons. you highlighted only 6% of the revenues come from apple. actually even if apple started to see compression on the margin sign, that doesn't mean they'll hurt their price. the other thing i would say, with respect to trying to catch the falling knife, this is really inexpensive for a call spread. we often think about tight call

spreads trading up to as much as 40% of the distance to the strikes. here you have enough time to play if there's a little balance. >> the other thing i like about this, if apple is losing market share and losing to say an android phone, chances are qualcomm is losing components to that phone. it's going to win either way. >> mike is right. this is pretty dollar cheap. i don't think it's outright cheap because you're quite a ways away. one thing, if you're going to do a spread, something that's really bouncing around is what you want to do it in. this has shown some volatility, if it's going to come back, it's probably going to come back quite a bit. >> i picked a strike where the stock was trading this morning and the short strike is where it was trading earlier in the week. i think this has a great chance to be in the money and break even. >> 100 shares of qualcomm will set you back just over $6,000. it offers a four to one payout and that's more than one month. >> our next trade. call it the ultimate shanghai surprise. strong manufacturing data sent shanghai composite to the best

single day performance since 2009. is the rally going to last? what's the best way to play it now. let's talk to the charts and the man never surprised. carter braxtonworth of oppenheimer. >> here we have one of the most dynamic moves over a one-month period. shanghai is up almost 9%, up 4.5% last night and 3% move a ek or so ago. up 9% when the s&p is unchanged. that's an explosive kind of thing. take a look at a second chart. what it shows is that move of the last two weeks or so has allowed us to break above the down trend for the last two plus years. btu, typically stocks lead actions in indices. here is btu verses century aluminum and u.s. steel. they've all been working for months.

in fact, four months of outperformance. take a look at btu itself. the same scalloping bearish to bullish move. it leads the way, checks back to the average and starting to bounce and then just to put in context, this action a little longer term. not only is it too broken above its down trend just as shanghai. it's been doing it for weeks and weeks and weeks. then importantly this bottoming out action recently, take a look at where it's happening. when you have this kind of sell-off, 70 back to a past low and then you hold the low and start to do that, it's a very constructive setup. we're long here. we think you've got a lot of upside. >> what's your take on btu. fundamentally it's interesting. a lot of the coal stocks have been severely beaten. the average multiple on this stock specifically is almost eight times, right now trading at just over six. definitely cheap compared to

regular numbers. ceo came out and said he thinks the earnings will trop. he's expecting growth from then on out. the reason is they're rolling out a lot of the higher priced toll contracts. one of the things important to remember about this, this company gets 40% of their mining revenues from australia. obviously the china story could be a good driver here. i like this one to the upside i think. >> mike tonight is doing what is called a call spread risk reversal, similar to a call spread. let's reopen the playbook one more time. in this strategy you sell a put and use the money to buy a call spread. the higher strike call is where you make the most money, where your profits are capped. since you're short a put as well, you must be willing to buy the stock at that put price. >> what i'm looking at is telling the 24 puts. i'll collect $1.10 there and purchase the march 29 call spending two dollars. to further finance the trade, sell the march 32 calls for a

dollar net credit of about a dime. the idea i can either get along the stock, up 3 brs, or if the stock comes in, i could be forced to buy it at 24 dollars. here is an important point, this stock when it hit its absolute low which took place in november of 2008, trading just over $16, i think the real risk you have to ask yourself is that's about as low as the stock will be likely to go. i think in any scenario we can imagine. we're looking for about a 90-day window. giving 12.5% upside. >> where was natural gas the last time peabody had that low. natural gas has been under pressure for quite some time on a relative basis. that's an important point. if you were looking at energy prices in '08 that's when crude peaked, towards $150 bucks in crude. switching to natural gas is one of the things to face, too. one of the things to be concerned about, we have abundant cheap natural gas, all

the new fired plants are gas fired turbines. >> the old ones are switching or have switched. >> that's still not the only driver, we do still have 40% of the revenues coming from australia. china is overwhelmingly coal fired. they get another $5 million a year or so from trading in the space. what i would expect to see is some increasing of their mining revenues. >> two parts. the actual stock and the trade. >> i have no view on the stock. the fundamental picture that's set up in the relativeness to the shanghai i think is very interesting. i like the trade structure. if you're prepared to get along at 24, going to take some margin. >> it is. this is a trade that really gets the math working for you because you're short that put. if you're willing to buy the stock down there, it's a great way, no cost. nothing out-of-pocket to do that. >> one more time on the stocks verses options button. want to buy peabody, convinced it's a good china play?

$28 a share. in mike's option, mike could be forced to buy it at $24 or about a 14% discount. we'll see carter later on in the show. got a question out there, send us a tweet at cnbc options. we'll answer it right after the show on our new website. yes, options action.cnbc pin come is the latest web sensation. in addition to scott, you'll find greater trader blogs and exclusive trades. do check it out. here is what's coming up next. call it an air ball. dan made a bearish bet on nike, the stock has only put more points on the board. the time taking off the shot clock, can dan pull off a late comeback. find out when options action returns. time for pump up the volumes, the names on the sizzle index. don't google it. this internet media company is undergoing a massive strategy change.

this week they made a big leap, revamping the e-mail service which is the most popular one in the country, traders must have got it clicked because the options action got bullish. who is it? the answer when "options action" returns.

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was seven times the put volume. >> scott, what was the bet here? >> this was on wednesday. yahoo! has been on a real run. it was high tore day even though the broad market had a tough day. this week's web extra, we've done a trade extra. if you own a little bit and are willing to take profits but you'd like to buy some at a discount, how do we do that? >> time for total recall where we invoke the title of a classic arnold schwarzenegger film. two weeks back dan made a bearish trade on mikey. shares of the shoemaker have yet to fall. dan hasn't lost any money yet. here is why. on "options action" it's how we t points on the board, risk less to make more. that's what dan tried to do with his bearish bet on nike. dan thought shares were setting up for a miss. >> i think it sets up for a near term bearish play. >> shorting the stock --

>> what are you guys doing? >> you said it lil penny. dan instead bought the december '95 put for $1.90. now dan needs nike to fall below that put strike price by more than the stock of the trade, below 93.10 by december expiration. paying almost two bucks just to get bearish on nike? we ain't got money to spend like these guys. show us how to do it. >> the december 7 weekly '95 strike put and put his put calendar. but he did something even better. he made making money easier and here is ouchlt between the $1.90 he spent buying the longer dated put and the 50 cents he collected by selling the shorter put, he put his cost at just $1.40. instead of needing nike to fall below 93.10 to make profit, below 93.60 by december expiration.

but it gets even better. that's because a value of the put that dan sold will decrease faster than the value of the longer dated put he bought allowing him to do something the dream team can only dream of, turn time into money. good thing he did cut his costs, since the time of the trade, nike shares have been flat meaning dan hasn't been able to cash in. now "options action" fans are glued to the show. and they just want to know one thing, what will dan do now? >> before we get the answer to that, many of you might be thinking if dan is so bearish why didn't he simply just buy the put, why mess around with all this turning time into money business? the answer is found by playing options verses options where we explain why the strategies can

work for you. had dan simply bought that longer-dated put, he would have lost 30% as time is eating away at the value of the put. gi doing the put calendar, dan's options package remained unchanged for a loss of about 5%. how is that? the near dated put he sold has expired worth less, meaning the declining value of the shorter dated put offset the value of the longer-dated put he bought. where is nike headed next? and how is dan managing it? >> let's turn it over to carter. what do you see in the charts? >> i think this is a very good trade. i'd stay with it. nike plunged and has rallied feebly. we think ultimately 85 bucks. >> dan, where do you stand on this? >> this is an interesting one. for those of you that follow us on twitter, this is a trade i've managed a couple times. i originally sold a weekly put expired, then sold the next weekly put against it. we updated that on twitter at cnbc options.

then the other day on the weakness i turned it into a vertical. now i own the put spread for less than 20% of the width of the spread. let me tell you what i'm hoping to happen. the stock closed a little below 97. i want the stock to go to 95. i want a nice profit in it. i want to take it off before the earnings event and move on. if there's any good data or commentary about chinese sales, stocks going up towards 100. >> is that what you would do? >> one way you could conceivably take a look at a bearish bet might be to sell a call spread on it. so you're looking to collect some of the premium after the event takes place. i agree wholeheartedly and also agree with the bearish action on nike. a reminder as we head to break, be sure to follow us on twitter. if you're on facebook, stay posted throughout the week at facebook.com/optionsaction.

the phone lines across america are burning up. right after the break you make the call. we are taking your calls live. if you want to participate, you need to e-mail us. the address is optionsaction@cnbc.com. back right after this.

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what's your best option? ran out of time for the calls. just the final call right now. >> if the walmart news is the case, i don't know how many microsoft surface cab let's will get caught. >> dan? >> qualcomm. >> good deal. we'll see you next week.